Preparing your firm's wind-down plan

Wind-down plans help firms exit the market in an orderly manner if their business is no longer viable. Find out when and how to prepare one for your firm.

We ask some firms to submit a wind-down plan as part of their application for authorisation.

This is to ensure that, when a firm goes out of business, it stops its regulated activities and cancels its permissions with minimal adverse effect on its clients, counterparties, or the wider market.

A wind-down plan can also help a firm assess if it would have adequate resources (both financial and non-financial) to wind down in an orderly manner, especially under challenging circumstances.

When you need to prepare a wind-down plan

Firms applying for authorisation should consult the relevant page[1] for their sector or business model to understand what information should be submitted as part of their application. For some types of firms, this will include a wind-down plan.

As set out in our finalised guidance on assessing adequate financial resources[2] (PDF), the FCA expects firms to consider the scenarios leading to financial stress, explore recovery options and, as a last resort, wind down their business.

Payment and e-money firms

A different regulatory regime applies to companies applying for authorisation or registration as a payment or electronic money institution.

Firms applying under the Payment Services Regulations 2017 (PSRs) or Electronic Money Regulations 2011 (EMRs) should consult our guidance in relation to wind-down plans at paragraphs 3.73 to 3.76 of Payment Services and Electronic Money - Our Approach[3] (PDF).

For these firms, we expect that a significant focus of the wind-down plan will be information that identifies customer funds and for whom they are held, and a plan for the prompt return of these funds, if appropriate.

Find out more about the requirements applicable to payments and e-money firms[4].

How to prepare a wind-down plan

Your wind-down plan should:

identify the steps and resources your firm needs to wind down its business, especially in a situation where resources are limited, and
evaluate the risks and impact of a wind-down and consider how to mitigate these risks

A typical wind-down plan includes these components:

Scenarios Plan Resources assessment Processes

Scenarios

Identify all the scenarios that could lead to your firm no longer being viable.

We expect your firm to have adequate governance and control processes, as well as management information monitoring, to support timely wind-down decision making.

Plan

Your plan should steer your firm to wind down its business in an orderly manner once you've either voluntarily decided to stop the business or the decision is unavoidable due to external circumstances.

Resources assessment

Your assessment should include both the financial and non-financial resources that are needed to support an orderly wind-down.

Processes

You should have processes to identify and mitigate any material risks or obstacles to winding down in an orderly manner.

These risks might include issues that could:

lead to significant consumer harm, and/or,
create significant adverse impact on the financial markets or other third parties

Planning for a wind-down

From our perspective, a wind-down period:

starts when a firm’s governing body makes the formal decision to wind down its regulated business, and notifies us
ends when we cancel the firm’s authorisation or registration

Wind-down can be triggered by a range of scenarios, so we expect firms to be prepared by identifying and monitoring key management information, relevant metrics and early warning indicators. This will support effective decision making, and help a firm invoke its wind-down plan in good time (if needed).

Scenarios for your wind-down plan

Think about the various scenarios which could lead to a wind-down, and to a potential recovery. 

This could happen for a variety of reasons, including:

significant financial losses with no signs of timely recovery
loss of key clients without the realistic prospect of replacing them in good time
loss of critical infrastructure (eg essential IT systems) with no signs of timely recovery

When formulating your wind-down plan scenarios, remember to factor in your:

business and operating models
key revenue drivers, clients and functions
vulnerable areas

If your firm is part of a larger group

If you decide to have your own individual wind-down plan, it may be impacted by group activities. In particular, some or all elements of its governance, financing and operations may be dependent on the group.

These dependencies will have implications on your wind-down plan’s cost, duration and simplicity.

You may wish to consider these issues:

interconnectedness, in particular between regulated and unregulated parts of the group
whether the entity would still have adequate resources to wind down in an orderly manner if the group failed
the period of time in between each review and update of your firm’s wind down plan

Resources you'll need in a wind-down scenario

Your firm should have adequate financial and non-financial resources to wind down in an orderly manner.

Non-financial resources

This includes the:

premises
IT
key employees
external advisors

You'll need to carry out the steps in your operational analysis. You should also think about how long you'll need each resource.

When negotiating outsourcing agreements, it may help to consider:

what would happen if you needed to invoke your wind-down plan, and
what impact this would have on the contractual relationship

Financial resources

A firm in wind-down will likely have non-routine cash inflows and outflows, which are best monitored on a daily basis. These will include:

inflows – ie, predicted revenue and other inflows that are likely to be limited after the triggering event and/or if a wind-down decision is made
ordinary outflows – ie the cost of maintaining operational premises and systems
extraordinary outflows associated with winding down – such as extra closure costs, legal fees, professional services and insolvency practitioner fees, redundancy payments, retention payments, pension fund deficits, lease and other termination penalties and the costs of breaking contracts

You should consider whether your firm would have enough cash or cash-equivalent investments to meet operating expenses and any other obligations during the wind-down period.

More information

Please refer to:

the WDPG chapter in our Handbook[5]
finalised guidance on assessing adequate financial resources[2] (PDF)
Payment Services and Electronic Money – Our Approach[3] (PDF)

First published: 01/03/2024 Last updated: 01/03/2024